Alan Caron: Cutting taxes and government hurt economy in Kansas, so beware

Seven years ago, the tea party candidate for governor in Kansas, Sam Brownback, was swept into office with pledges to cut taxes and government, and create a robust and growing economy. Soon thereafter, income taxes for the wealthiest of Kansas citizens were reduced by 25 percent and most businesses paid no taxes at all.

And everyone waited for the promised gravy train.

Brownback called it a “live experiment,” and the Legislature gave him all the laboratory beakers and test tubes he needed. On June 6, the Republican-led Kansas Legislature finally pulled the plug on Brownback’s tax program, after years of fiscal chaos, budget gimmicks, crowded schools, sinking credit ratings and deficits.

The “shot of adrenaline” to the economy that Brownback promised never materialized. Promised revenues were barely half what he projected. The state’s economy did worse than surrounding states.

Staff Illustration by Michael Fisher

And the 2014 elections in Kansas, 100 Republican former and current elected officials turned against Brownback. Voters were not amused either, turning out key Brownback supporters last year in droves, and replacing them with sensible moderates from both parties.

Meanwhile, the wealthy people of Kansas were laughing all the way to their offshore bank.

If the Kansas plan to cut taxes and grow the economy sounds familiar, it should. It’s the same program that tea party champion Paul LePage has pushed for seven years. It’s also the model for Trump’s proposal to lower taxes at the federal level.

That car wreck by the side of the road, with the nameplate “Kansas” on it, could have been us, if LePage had been more skillful in selling his ideas. And it might still be us if Trump’s gets what he wants.

The Republican hymnal about economic growth is not complex. Cut taxes. Shrink government. The economy takes off. Order a round of martinis. The problem is that it almost never works. When wealthy people in Kansas got their tax cuts, they didn’t create jobs. They took the money and ran. They invested it somewhere else. Or they bought a new toy made in Taiwan or Korea.

The greatest period of expansion in the American economy, between 1946 and 1978, is when the modern American middle class was born. In 1946 the top tax rate was 86 percent. By 1978 it had dropped to 70 percent. Today, it’s at 35 percent and President Trump would like to lower it again.

But here’s what happened as those top tax rates fell. The middle class shrunk. Government debt grew. And the distribution of income in America got dangerously lopsided in favor of the super-rich.

The Republican theory of trickle-down economics has been around since Herbert Hoover ushered in the Great Depression. Ronald Reagan employed it while tripling the national debt. President George W. Bush tried it again in 2001 and 2003, and we got the Great Recession.

Ironically, when George H.W. Bush and Bill Clinton actually increased the top marginal rate on taxes, in 1990 and 1993, we had a five-year period of robust growth.

The Congressional Research Service recently studied the effect of tax cuts on the economy, since 1945. They concluded that tax rates on the richest Americans “have had little association with saving, investment or productivity growth.”

I’d go a step further. The idea of cutting taxes on the wealthy to generate a trickle-down effect for the rest of us is the worst and most poisonous elixir that the country has ever been asked to swallow.

Related

Another problem with the idea is that the tax cuts are never paid for when they’re enacted. Promoters promise that the growth they’ll create will be so spectacular that they’ll pay for themselves eventually. But they don’t.

That approach is a little like your kid buying an expensive new car because he believes it will lead to a big job offer that will help pay for the car. Most often, that’s going to end badly.

With Congress about to act on yet another round of tax cuts for the rich, and with elections coming up next year for a new governor, we need to get clear on the track record of this fiscal nonsense. This is an urgent issue for Maine.

We dodged a bullet over the last seven years, in some ways, because LePage, unlike Brownback, couldn’t stay focused long enough to enact the tax cuts he wanted. But imagine what would have happened if we’d elected a more competent tea party governor who could have rallied people to support his big tax cuts and slashing attacks on government? What would Maine look like now?

It would look like Kansas.

What happened in Kansas should be required reading for every candidate, elected official and citizen who wants to see a new prosperity here.

Targeted tax cuts can help an economy to grow, but we have to be smart about it. That means replacing ideology and wishful thinking with common sense and real data. If we want people to create jobs, we should reward that behavior. Give tax breaks to people to add and keep good jobs. It’s not more complicated than that.

But across the board tax cuts to the rich, hoping that those folks will do the right thing, and that the benefits will miraculously trickle down to everyone else, is a sucker’s bargain, and always has been.

Alan Caron is the owner of Caron Communications and the author of “Maine’s Next Economy” and “Reinventing Maine Government.” He can be contacted at:

Here at MaineToday Media we value our readers and are committed to growing our community by encouraging you to add to the discussion.

To ensure conscientious dialogue we have implemented a strict no-bullying policy. To participate, you must follow our Terms of Use. Click here to flag and report a comment that violates our terms of use.